This paper studies the impact of a regional free trade agreement, MERCOSUR, on technology
upgrading by Argentinean firms. To guide empirical work, I introduce technology choice in
Melitzs (2003) model of trade with heterogeneous firms. The joint treatment of the technology
adoption and exporting choices shows that the increase in revenues produced by trade integration
can induce exporters to upgrade technology. An empirical test of the model reveals that firms in
industries facing higher reductions in Brazils tariffs increase their investment in technology
faster. The effect of tariffs on entry in the export market and technology adoption is highest in
the upper-middle range of the firm size distribution, as predicted by the model.